The Bank for International Settlements just finished its Annual Economic Report and pre-released a portion of it on Sunday. The release revealed the bank’s official opinion on cryptocurrencies and their limitations.
In the company’s paper, it brought up concerns about the ability of the coins’ infrastructures to handle the full brunt of all the retail transactions that happen today.
“To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months,” the BIS wrote.
Indeed, perhaps one of the biggest problems plaguing most coin blockchains today is the fact that every computer acting as a node has to store a copy of the entire ledger, the full history of all transactions ever executed on their backbones.
Currently, Bitcoin’s blockchain reaches around 200 GB, with transaction volumes that are nowhere near as high as those by Visa or Mastercard.
Under such a model, it would eventually be impossible for a normal computer to run a full node. Inevitably, the Bitcoin blockchain would reach several terabytes in size, allowing only technically-savvy users with the resources to buy several 10-terabyte drives to run full nodes.
This is a problem that the cryptocurrency community is already aware of and anticipating.
In a conversation with a member of the Zcoin team that we had not long ago on Telegram, we found out that a lot of core developers for different coins have other priorities at the moment and would get around to addressing this issue once it really pushes the limits of modern computers.
For now, of course, that isn’t quite the case. 200 GB fits comfortably inside standard hard drives sold today, and we don’t anticipate Bitcoin’s blockchain ballooning to exabyte levels anytime soon.
Bitcoin isn’t the only cryptocurrency, though, and there are already a number of foundations focused on solving this issue. Vitalik Buterin, for example, proposes sharding the Ethereum network, which will make it less cumbersome to download and process all transactions.
Under this model, full nodes won’t have to process the entirety of the network’s grunt work, instead getting pieces of it asynchronously.
Buterin alleges that the Ethereum network would theoretically be capable of processing 1 million transactions per second under this model.
It “Could Bring The Internet to a Halt”
The second problem that BIS sees in blockchain technology is the amount of processing power required to verify transactions and the amount of traffic required to broadcast them to all nodes in the network.
“The issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with the verification of the incoming transactions. The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte,” BIS wrote.
But how large are blocks in a network like Bitcoin’s, anyway?
Historically, a block on Bitcoin’s chain never surpassed one megabyte. One of these blocks is often processed by the cryptocurrency’s network every 10 minutes.
So, let’s say that there 100,000 full nodes in the network. There are actually around 10,000 at this moment, but we want to provide a generous number.
That means that every ten minutes, 100,000 megabytes of traffic are generated on the internet. That sounds enormous, but it’s a tiny blip compared to the thousands of terabytes that go through the pipelines on a daily basis.
With sharding and other scalability improvements, we can confidently expect a reduction in the amount of data transferred between all nodes on the network.
As for the amount of processing power used for verifying transactions, this all depends on the cryptocurrency’s network and whether it uses a proof-of-work or proof-of-stake model to verify a block.
To confirm a block, nodes do not use any more processing power than payment card processors do for individual transactions.
In conclusion, the Bank for International Settlements’ report looks at cryptocurrencies’ networks with all the flaws they currently have. Granted, we can’t predict how they’ll be over the next few years, but ignoring the improvements that some altcoins have already implemented or other mainstream coins are currently working on doesn’t do justice to the potential of the cryptocurrency market.
This article appeared first on Cryptovest
